# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 7- 10 97

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Jo hn R. Sto eb ne r, Trus te e

ll ll ll ll ll ll ll ll ll ll l

App el la nt

v.

Opp or tu ni ty Fina nc e, LLC, et al

.

ll ll ll ll ll ll ll ll ll ll l

App el le e s

----- ----- ----- ----- ----- -----

JP Mo rg an Ch as e Ban k

ll ll ll ll ll ll ll ll ll ll l

Amicu s o n Beh al

f o f Ap pe ll ees

__ __ __ __ __ __

App eal fro m

Uni te d S ta te s Di st ric t Co ur t
fo r th e Dis tri ct of M in ne so ta - Mi nn eap ol is

__ __ __ __ __ __

Su bm it te d: Ju ne 14 , 20 18
Fi le d: Nov em

be r 20 , 20 18

__ __ __ __ __ __

Befo re LOKEN, GRUEND ER, an d ERI CKSON, Ci rcu it Ju dg es

.

__ __ __ __ __ __

LOKEN, Ci rcu it Ju dg e.Fo r m an y y ears pr i o r t o Sep te m be r 20 08

, Mi nn es ot a bu si ne ss m an Tho m as

Pet te rs , th ro ug h hi s co m pa ny Pet te rs Co m

pa ny, In c. (“ PCI” ), “p u r

p o r te d to ru n a

‘div ert in g’ bu si ne ss th at pu rch as ed el ect ro ni cs in bu lk an d res ol d th em at hi gh pr of it s

to m ajor ret ai le rs .” Ri tc hi e Cap it al Mg m t., LLC v. St oe bn er, 77 9 F.3 d 85 7, 85 9 (8 th

Ci r. 20 15 ). In ve st or s, de cei ve d by fab ric at ed pu rch as e or de rs , pr ov id ed PCI

fin an ci ng to acq ui re m erch an di se fo r res al e. Ri tc hi e Sp eci al Cred it In vs ., Ltd

. v. U.S.

Tr., 6 20 F.3 d 8 4 7

, 8 5 0 (8 th Ci r. 20 10 ). In fact , P CI di d no t pu rch as e m erch an di se

an d se ll it to ret ai le rs

. Its “ in co m e” cam e fro m in ve st or lo an s th at PCI us ed to rep ay

earl ie r in ve st or s. Thu s, PCI was a m ul ti -b il li on do ll ar “ Po nz i sc he m e.” Pet te rs al so 1

acq ui red le gi ti m at e bu si ne ss es

. His in ve st m en t co m pa ny, Pet te rs Gro up W or ld wid e, LLC, pu rch as ed th e st oc k of Po la ro id Co rp or at io n in Apr il 20 0 5

. R i t c hi e Cap it al

Mg m t., LLC v. JP M o r g a n C ha se & Co

., No. 14 -CV-4 78 6 (DW F/ FLN), 20 17 W L

64 03 09 6, at *2 (D. Mi nn

. Dec. 14

, 20 17 ). Pri or to th e acq ui si ti on , a se pa rat e Pet te rs

co m pa ny, Pet te rs Co ns um er Bran ds

, LLC (“ Pet te rs CB” ), pa id Po la ro id li cen si ng fees

fo r th e sa le of “ Po la ro id ” b ran de d c on su m er el ect ro ni cs to pro m in en t re ta il ers

.

Fo ll owi ng th e co ll ap se of Pet te rs ’s po nz i sc he m e, P o l a r o i d Co rp or at io n an d

rel at ed en ti ti es (co ll ect iv el y , “ Deb to rs ”) fil ed fo r pr ot ect io n un de r Ch ap te r 11 of th e

Ban kr up tc y Co de

. The cas es were co nv ert ed to Ch ap te r 7 li qu id at io n pr oc eed in gs in

2 0 0 9 ; Jo hn St oe bn er was ap po in te d ba nk ru pt cy Trus te e. Rep res en ti ng Deb to rs ’

cred it or s, h e br ou gh t th is ad ve rs ari al su it ag ai ns t Opp or tu ni ty Fi na nc e, LLC an d

rel at ed de fen da nt s (“ Opp or tu ni ty Fi na nc e”) an d DZ Ban k AG Deu ts ch e Zen tra lGen os se nscha ft sbank (“ DZ Ban k” ), se ek in g to av oi d as frau du le nt tra ns fers un de r th e

Mi nn es ot a Uni fo rm Frau du le nt Tran sf er Act (“ MUFTA”) ov er $2 50 m il li on in lo an

In br oa d te rm s, a Po nz i sc h e me i s a “ frau du le nt bu si ne ss ve nt ur e[] i n whi ch 1

in ve st or s’ ‘retu rn s’ are ge n e r a t e d by cap it al fro m ne w in ve st or s rat he r th an th e

su cces s of th e un de rlyin g bu si ne ss ve nt ur e.” In re Arm st ro ng , 29 1 F.3 d 51 7, 52 0 n.3 (8 th Ci r. 20 02 ). Afte r th e sc he m e was ex po se d in 20 08

, Pet te r s w a s c o n v i c te d of
frau d an d m on ey la un de rin g an d se nt en c e d t o 50 y ears im pr is on m en t. See Uni te d

St at es v. Pe tt ers , 66 3 F .3d 37 5 (8 th Cir . 20 11 ), cert . den ie d, 5 66 U.S. 99 0 (2 01 2)

.

-2

-pa y m en ts m ad e to de fen da nt s by Pet te rs CB in 20 03 -2 00 5, pr io r to Pet te rs ’s

acq ui si ti on of Po la ro id

. See 11 U.S.C. § 54 4( b) (1 ); Mi nn

. St at

. § 51 3.4 4 (2 01 4)

. 2

The Seco nd Am en de d Co m pl ai nt (“ SAC”) al le ge d th at two Deb to rs , Po la ro id

Hol di ng Co m

pa ny (“ PHC”) an d Po la ro id Co ns um er Elec tro ni cs , LLC (“ PCE”), “ are

th e su cces so rs in in te res t to [Pet te rs CB].” The ba nk ru pt cy co ur t gr an te d de fen da nt s’ 3

m ot io ns to di sm is s, an d t he di st ric t co ur t affi rm ed . Debt or s ap pe al . W e aff irm. 4

I. Th e Is su es on Appea l.

The Trus te e fil ed th e SAC on Nov em be r 8, 20 13

. On Decem

be r 20

, de fen da nt s

m ov ed to di sm is s. See Fed

. R. Ci v. P. 12 (b )(6 ), as in co rp or at ed by Fed

. R. Ban kr

. P.

7 01 2( b)

. Afte r le ng th y arg um en t on Mar ch 3, 20 14

, th e ba nk ru pt cy co ur t t o o k t h e

m ot io ns un de r ad vi se m en t. On Feb ru ary 18

, 20 15

, th e Su pr em e Co ur t of Mi nn es ot a

is su ed it s de ci si on in Fi nn v. All ia nc e Ban k, ho ld in g th at th e so -cal le d “ Po nz i-s ch em e

pr es um pt io n” pr ev io us ly a d o p t e d b y so m e co ur ts can no t be us ed to es ta bl is h th ree

el em en ts of a cl ai m un de r MUFTA
-- frau du le nt in te nt

, th e de bt or ’s in so lv en cy at th e

ti m e of th e tra ns fer, an d th e la ck of reas on ab ly eq ui va le nt va lu e. 86 0 N.W .2d 63 8,

64 5- 53 (Mi nn

. 20 15 ). At a Decem be r 20 15 om ni bu s he ari ng i n t h e Ch ap te r 7

pr oc eed in gs , th e Trus te e fo r th e fir st ti m e so ug ht le av e to fil e a th i r d a men de d

co m pl ai nt to ad dr es s se v e n d iff eren t is su es

. The ba nk ru pt cy co ur t ad vi se d th at a

Mi nn es ot a am en de d MUFTA in 20 15 to en act am en dm en ts to th e Uni fo rm 2

V o i d a b l e Tran sf

ers Act. See 20 15 Mi nn

. Ses s. Law Serv

., ch

. 17

, se c. 4

. Th e

am en dm en ts do no t m ean in gf ul ly m od ify th e pr ov is io ns of § 51 3.4 4 he re at is su e. In

an y ev en t, t he pri or

pro vi si on s g ov ern th is su it . Id. at sec . 13

.

The Hon or ab le Gr e g o r y F

. Kis he l, Ch ie f Ju dg e of th e Uni te d St at es 3

Ban kr up tc y Co ur t fo r th e Dis tri ct of M in ne so ta , no w ret ire d.

The Hon or ab le Su sa n Ri ch ard Nels on , Uni te d St at es Dis tri ct Ju dg e f o r th e 4

Dis tri ct of M in ne so ta

.

-3

-writ te n de ci si on on th e m ot io ns to di sm is s was im m in en t an d ru l e d it wou ld no t

en te rta in a m ot io n t o a m en d p rio r to is su in g t ha t d eci si on

.

In Ja nu ary 20 16

, th e ba nk ru pt cy co ur t is su ed it s le ng th y de ci si on gr an ti ng th e

m ot io ns to di sm is s o n t wo al te rn at iv e gr ou nd s. In re: Po la ro id Co rp ., 54 3 B.R. 88 8
(Ban k r

. D

. M in n. 20 16 ). Fi rs t, th e co ur t he ld th at th e Trus te e la ck ed st at ut or y

st an di ng to as se rt cl ai m s un de r MUFTA be cau se he fai le d to id en ti fy an y cred it or of

PHC or PCE, th e Deb to rs al le ge d to be su cces so rs -in -in te re st to Pet te rs CB, th at

wou ld ha ve an al lo w a b l e c la im ag ai ns t th e Deb to rs to whi ch it co ul d lo ok fo r

sa ti sf act io n to a tra ns fer m ad e by Pet te rs CB be fo re Pet te rs acq ui red Po la ro id

. Id

. at

90 3; se e ge ne ral ly In re Mar la r, 2 6 7 F.3 d 74 9, 75 3 (8 th Ci r. 20 01 ). Seco nd , o n th e

m eri ts

, ap pl y in g th e Su pr em e Co ur t o f Mi nn es ot a’s de ci si on in Fin n, t he co ur t hel d

th at th e SAC fai le d to st at e a cl ai m fo r act ua l or co ns tru ct iv e frau du le nt tra ns fer un de r

MUFTA. 54 3 B.R. at 91 1- 14

. The co ur t fu rth er ru l e d t h a t a l lo win g th e Trus te e to

fil e a th ird am en de d co m pl ai nt wou ld be fu ti le

, as th e pl ead in g of fact s th at m ig ht

de m on st rat e st an di ng or st at e a cl ai m wou ld co nf li ct wit h fact s al read y pl ead ed

. Id

.
at 90 3, 9 14 . On ap pe al , th e d is tri ct co ur t u ph el d t he ba nk ru pt cy co ur t’s d eci si on to

di sm is s on bo th gr ou nd s an d fu rth er ru le d th at th e ba nk ru pt cy co ur t di d no t ab us e it s

di sc ret io n in de nyin g le av e to am en d be cau se th e Trus te e un reas on ab l y de la y ed in

r e q u e s ti ng le av e to am en d, de fen da nt s wou ld be pr ejud ic ed

, an d an y am en dm en t

wou ld be fut il e. Sto eb ne r v. Op p. Fi n., LLC, 56 2 B .R. 36 8 (D. M in n. 2 01 6)

.

The Trus te e ap pe a ls al l th ree ru li ng s, as se rti ng he ha s st at ut or y st an di ng , t he

SAC st at ed cl ai m s fo r act ua l an d co ns tru ct iv e frau du le nt tra ns fer un de r MUFTA, an d

th e ba nk ru pt cy co ur t erre d in no t pe rm it ti ng hi m to am en d th e SAC. Defen da nt s

co nt es t al l th ree as se rti on s; JP Mo rg an Ch as e Ba n k

, N.A. (“ JP Mo rg an ”), fil ed an

ami cu s bri ef i n s up po rt o f th e d efen da nt s.

Thi s is an un us ua l frau du le nt tra ns fer cas e be cau se th e Trus te e se ek s to av oi d

tra ns fers m ad e by a pa rty pr i o r t o t h e ti m e it ev en arg ua bl y be cam e a Ch ap te r 7

-4

-de bt or

. The st an di ng is su es are fu ll y br ie fed

, co m pl ex , an d di ffi cu lt

. Our co nc lu si on 5

th at t h e ba nk ru pt cy co ur t an d th e di st ric t co ur t co rrec tl y di sm is se d th e Trus te e’s

cl ai m s o n t he m eri ts m ak es it un ne ces sa ry to de ci de th e st an di ng is su es

.

II . The SAC Fa il ed To Sta te a Cla im Under MUFTA.

A ba nk ru pt cy tru st ee m ay “ av oi d an y tra ns fer of an in te re s t of th e de bt or in

pr op ert y or an y ob l i g a t i on in cu rred by th e de bt or th at is vo id ab le un de r ap pl ic ab le

la w by a cred it or ho ld in g an un se cu red cl ai m .” 11 U.S.C. § 5 4 4 ( b ) ( 1 )

. MUFTA

“ al lo ws cred it or s to reco ve r as se ts th at de bt or s ha ve frau du le nt ly tra ns ferr ed to th ird

pa rti es .” Fin n, 8 60 N.W .2d at 64 4. MUFTA in cl ud es bo th act ua l an d c on st ru ct iv e

frau d p ro vi si on s:

(a) A tra ns fer m ad e or ob li ga ti on in cu rred by a de bt or is frau du le nt as

to a cred it or , whe th er th e cred it or ’s c l a i m a ro se be fo re or aft er th e

tra ns fer was m ad e or th e ob li ga ti on was in cu rred

, if th e de bt or m ad e th e

tra ns fer o r in cu rred th e o bl ig at io n:

(1 ) wit h act ua l in te nt to hi nd er, de la y , or de frau d an y cred it or of th e de bt or ; o r

(2 ) wit h ou t rece iv in g a reas on ab ly eq ui va le nt va lu e in ex ch an ge fo r th e tr an sf er o r ob li ga ti on , and th e d eb to r:

(I) was en ga ge d or was ab ou t to en ga ge in a bu si ne ss or a tra ns act io n fo r whi ch th e rem ai ni ng as se ts of th e de bt or were un reas on ab ly sm al l in
rel at io n t o t he bu si ne ss or t ran sa ct io n; or

As th e ba nk ru pt c y c o u r t su cci nc tl y su m m ari zed it s le ng th y an al y si s: “ The 5

fla w

. . . in th e Trus te e’s pl ead ed no ti on of hi s own st an di ng

. . . . is be st -ex pr es se d by

a qu es ti on : in Decem

be r, 20 08

, ho w co ul d a cred it or of [De bt or s PHC] or PCE ha ve jus ti fie d reac hi ng ba ck be y on d th e li n e o f A p r il

, 20 05

, to su e a tra ns fere e of

Pett er sC B ? The ab su rd it y

of s uc h a no ti on is cle ar. . . .” 54 3 B .R. at 9 01

.

-5

-(ii ) in te nd ed to in cu r, or be li ev ed or reas on ab ly sh ou ld ha ve be li ev ed

th at th e de bt or wou ld in cu r, de bt s beyond th e de bt or ’s ab il it y to pa y as th ey be cam e d ue

.

Mi nn

. St at

. § 51 3.4 4( a)(1 )-(2 ) (2 01 4)

. Sect io n 51 3.4 4( b) se ts fo rth a no n- ex cl us iv e

li st of fact or s co ur ts may co ns id er in de te rm in in g act ua l in te nt

, co m m on ly refe rred

to as “ ba dg es of frau d.” Ci ti zen s S t a t e B a n k Nor woo d You ng Am

. v. Bro wn, 84 9

N.W .2d 55 , 60 (Mi nn . 20 14 ).

W he n th e Trus te e fil ed th is ad ve rs ary su it in Decem be r 20 10

, so m e co ur ts

ap pl y in g ot he r fr au dul en t tr an sf er stat ut es ha d ad op te d a “ Po nz i sc he m e pr es um pt io n”

th at “ al lo ws a cred it or to bypas s th e pr oo f req ui rem en ts of a frau du le nt -tr an sf er cl ai m by sh owi ng th at th e de bt or op erat ed a Po nz i sc he m e an d tra ns f e r red as se ts ‘in

fu rth eran ce of th e sc he m e.’” Fi nn , 86 0 N.W .2d at 64 6 (ci ta ti on om it te d) ; se e Ri tc hi e Cap it al Mg m

t., 77 9 F.3 d at 86 2 (d ecl in in g to de ci de whe th er to ad op t th e pr es um pt io n

un de r 11 U.S.C. § 5 48 (a)( 1) , th e Ban kr up tc y Co de ’s frau du le nt tra ns fer p ro vi si on ).

The Trus te e pl ead ed hi s MUFTA cl ai m s in rel ia nc e on th e Po nz i pr es um pt io n.

The SAC al le ge d th at fro m 20 03 t o 2 0 05

, th e pe rio d whe n th e al le ge d frau du le nt

tra ns fers were m ad e, Pet te rs CB “ was in th e bu si ne ss of bu y in g co ns um er el ect ro ni cs

to whi ch [it ] wou ld affi x th e ‘Pola ro id ’ br an d na m e an d se ll to ret ai le rs li ke Bes t

Bu y .” “ [U]nli ke m an y of Tom Pet te rs ’ co m pa ni es , [Pet te rs CB] actu al ly pur ch as ed

, wareh ou se d, an d so ld to pr o mi n e n t ret ai le rs hi gh vo lu m es of co ns um er el ect ro ni c

e q u i pm en t,” fu nd in g a su bs ta nt ia l po rti on of th e pu rch as es wit h lo an s f r o m Opp or tu ni ty Fi na nc e be ari ng a 12 % in te res t rat e th at was “ su bs ta nt ia ll y in ex ces s of

th e m ark et rat e fo r su ch lo an s.” The SAC so ug ht to av oi d ov er $2 51 ,00 0,0 00 of lo an

rep ay m en ts m ad e by Pet te rs CB befo re it acqu ire d P ol aro id an d t he rel at ed Debt or s.

-6

-The SAC li nk ed Pet te rs CB’s fin an ci ng of le gi ti m at e pu rch as es of co ns um er

el ect ro ni cs to th e on -g oi ng Po nz i sc he m e be in g pe rp et rat ed th ro ug h PCI by al le gi ng

th at Pet te rs cau se d Pet te rs CB to fin an ce an d en ga ge in t h e s e r e ta il tra ns act io ns “ at

le as t in pa rt to gi ve hi s or ga ni zat io n a p h ys i c a l pr es en ce in th e m ark et pl ace an d

th ereb y to gi ve a fal se ap p e a r a n c e of le gi ti m acy to hi m se lf an d hi s or ga ni zat io n.”

Mo reo ve r, th e SAC al le ge d, Pet te rs la un de red pr oc eed s fro m th e Po n z i s c h em e

th ro ug h Pet te rs CB an d wit h d r e w la un de red fu nd s fro m Pet te rs CB. Reg ard in g it s

cl ai m s of co ns tru ct iv e frau d, th e SAC al lege d that Pet te rs CB “ co ns is te nt ly lo st m on ey

an d ran at a ne t lo ss .” Due to sh rin ki ng p r o f i t m arg in s in th e el ect ro ni cs in du st ry , li cen s i n g f

e e s pa id fo r th e Po la ro id br an d, m an uf act ur in g pr ob le m s, an d va rio us

ex pe ns es , Pet te rs CB “ co ul d no t real is ti cal ly ex pe ct to m ak e a pr of it .” Pet te rs “ kn ew

th at [Pet te rs CB] was de st in ed to fai l, an d [Pet te rs CB] ul ti m at el y an d in ex or ab ly di d

fai l.” Pet te rs CB was “ in so lv en t on an d a fte r th e d at es of t he Tran sf ers ” b ecau se it s

de bt s were gr eat er th an th e fai r va lu e of it s pr op ert y

. It “ was cap it al iz ed an d pr op pe d

up wit h fu nd s ob ta in ed by frau d th ro ug h th e Po nz i sc he m e,” an d it rece iv ed le ss th an

reas on ab ly eq ui va le nt va lu e fo r lo an rep ay m en ts be cau se th e 12 % i nt e r es t rat e was

“ si gn ifi can tl y

ab ov e-m ark et ” o r co ns ti tu te d “ fal se pro fit s.”

In Fi nn , a de bt or in th e bu si ne ss of m ak in g lo an s to bo rro wers an d th en se ll in g

pa rti ci pa ti on in te res ts to fin an ci al in st it ut io ns f r au du le nt ly so ld in te res ts th at

ex ceed ed t h e a mo u n t of th e lo an s or di d no t res t on an y un de rlyin g lo an s, pa y in g

earl y in ve st or s wit h f

u n d s pr ov id ed by la te r in ve st or s. 86 0 N.W .2d at 64 2. The

rece iv er sue d un de r MUFTA to av oi d th os e pa y m en ts

, in vo ki ng th e “ Po nz i-s ch em e

pr es um pt io n.” Not in g “ th at th e fo cu s of th e st at ut e is on in di vi du al tra ns fers

, rat he r

th an a pa tt ern of tra ns act io ns th at are pa rt of a gr eat er ‘sch em e,’” th e Su pr em e Co ur t

of Mi nn es ot a he ld th at th e pr es um pt io n do es no t ap pl y t o a ct ua l or co ns tru ct iv e

frau du le nt tra ns fer cl ai m s un de r MUFTA. 86 0 N.W .2d at 64 6- 53

. In st ead

, a cred it or

m us t “ pr ov e th e el em en ts of a frau du le nt tra ns fer wit h res pe ct to each tra ns fer, rat he r

th an rel y in g on a pr es um

pt io n rel at ed to th e fo rm or st ru ct ur e of th e en ti ty m ak in g th e

tra ns fer.” Id

. at 64 7. The Co ur t co n c l u d ed th at Po nz i sc he m e pa y m en ts to sa ti sf y

-7

-le gi ti m at e an te ced en t de bt s to de fen da nt ba nk s co ul d no t be av oi de d by th e rece iv er

ab se nt tra ns act io n- sp eci fic pr oo f of act ua l in te nt to de frau d or th e st at ut or y el em en ts

of co ns tru ct iv e frau d
-- tra ns fer by an in so lv en t de bt or who di d no t rece iv e reas on ab ly

eq ui va le nt va lu e in ex ch an ge . Id. at 65 3- 56

.

App lying Fi nn , th e b an kr up tc y co ur t con cl ud ed th at th e SAC fail ed to st at e a

cl ai m of act ua l or co ns tru ct iv e frau d. 54 3 B.R. at 90 4- 14

. “ The Trus te e ne ve r al le ge s

th at an y of th e m on ey Pet te rs CB bo rro wed fro m [Op po rtu ni ty Fi na nc e] was di ve rte d

aw ay fr om real tra ns act io ns in Po la ro id -li cen se d mer c h an di se , in frau d of
[Op po rtu ni ty Fi na nc e] or an y ot he r pe rs on or en ti ty.” Id

. at 90 7. The Trus te e “ sl ap s [th e te rm fal se pro fit s] on to th e ret ur n o n in ve st m en t fro m fin an ci ng ge nu in e de al s,

on th e so le pl ead ed gr ou nd th at th e rat e on th e le nd in g was so m eh ow ex c e s s i ve ,
pr ed at or y .” Id

. “ Not a si ng le pl ead ed fact go es to ho w Pett er sC B wou ld ha ve pa id
[Op po rtu ni ty Fi na nc e] wit h a co nt em po ran eo us in te nt to

. . . de frau d it s ow n

c r e d i to rs .” Id

. at 91 2. “ As bi nd in g pr eced en t, Fi nn

. . . reject [ed ] M U F TA ’s

ap pl ic at io n to

. . . . [th e] ve ry fact -p at te rn

. . . th at ap pe ars on th e face of th e Trus te e’s
pl ead in g a ga in st th e Opp or tu ni ty Fina nc e d efen da nt s.” Id . at 9 14

.

Afte r th or ou gh rev ie w, th e di st ric t co ur t ag reed wit h th e b a nk ru pt cy co ur t’s

an al y si s. 56 2 B.R. at 3 8 4

- 9 0

. “[T]he Trus te e bu tt res se s hi s pl ead in g of frau du le nt

in te nt wit h al le ga ti on s th at st il l in vo ke th e Po nz i sc he m e pr es um pt io n an d ot he rwis e

co nt rad ic t Fi nn .” Id . at 38 7. “ The Trus te e’s al le ga ti on s co nc ern in g th e in so lv en cy

of Pet te rs CB at the ti m e of th e tra ns fers rel y on th e ex is te nc e of th e Po nz i sch em e.”

Id

. at 38 9. “ Su ch al le ga ti on s are co nc lu so ry an d m erel y tra ck th e st at ut or y la ng ua ge ,”

un li ke al le ga ti on s in Fi nn whi ch th e Mi nn es ot a Su pr em e Co ur t fo un d su ffi ci en t to

st at e a cl ai m

of c on st ru ct iv e fra ud . Id. at 39 0.

On ap pe al

, th e Trus te e arg ue s th at he ad eq ua te ly pl ead ed cl ai m s of act ua l an d

co ns tru ct iv e f

rau d un de r MUFTA. W e rev ie w th e ba nk ru pt cy co ur t’s gr an t of th e

m ot io ns to di sm is s de no vo

. In re Arch di oc es e of Sai nt Pau l & Mi nn eap ol is

, 88 8 F.3 d

-8

-94 4, 95 0 (8 th Ci r. 20 18 ). Und er Fed eral Ru le of Ci vi l Pro ced ur e 8( a)(2 ), a co m pl ai nt

“ m us t co nt ai n su ffi ci en t fact ua l m at te r, acce pt ed as tru e, to ‘stat e a cl ai m to rel ie f th at

is pl au si bl e on it s face ’” to su rv iv e a m ot io n to di sm is s. Ash cro ft v. Iq ba l, 55 6 U.S.

66 2, 67 8 (2 00 9)

. “ Thre ad ba re reci ta ls of th e el em en ts of a cau se of act io n, su pp or te d
by m ere co nc lu so ry st at em en ts

, do no t su ffi ce,” an d th e co ur t is “ no t bo un d to acce pt

as tru e a l eg al co nc lu si on co uc he d a s a f act ua l al le ga ti on .” Id

. 6

The Trus te e arg ue s th e SAC st at ed a cl ai m of act ua l frau d by al le gi ng th at an y

tra ns fer by Pet te rs CB was mad e wit h in te nt to de frau d be cau se Pet te rs kn ew th e

co m pa ny “ was in so lv en t an d em ba rk ed on a bu si ne ss p l a n cert ai n to fai l” an d th at

“ ul ti m at el y an d i n ex or ab ly di d fai l,” an d th e ch al le ng ed tra ns fers “ po st po ne d

di sc ov ery o f th e fact s th at [Pet te rs CB] was in so lv en t, pr op pe d up wit h Po nz i fu nd s

an d a s s u mp t i o n of de bt by rel at ed pa rti es .” Thi s th eo ry fli es in th e face of Fi nn ’s

req ui rem en t th at each tra ns act io n m us t b e an al y zed in di vi du al ly an d pr es um es

frau du le nt in te nt ba se d on “ th e fo rm or st ru ct ur e of th e en ti ty m ak in g th e tra ns fer.”

86 0 N.W .2d at 64 7. W e ag r e e wit h de fen da nt s an d JP Mo rg an th at th is th eo ry is

si m pl y a rep ack ag in g of th e Po nz i sc he m e pr es um pt io n reject ed by Fi n n

. A s t he

Trus te e pr op erl y no te s, Fi nn he ld th at “ a co ur t co ul d m ak e a rat io na l in fere nc e fro m

th e ex is te nc e o f a Po nz i s ch em e th at a pa rti cu la r tra ns fer was m ad e wit h frau du le nt

in te nt .” Id

. at 64 7 (q uo ta ti on om it te d)

. Bu t th e SAC is be reft of fact s de m on st rat in g

Pet te rs CB’s in te nt to de frau d it s o w n c r e d it or s th ro ug h th e lo an rep ay m en ts

. The

SAC affi rm at iv el y al le ge s th at Pet te rs CB fin an ced le gi ti m at e bu s i n e s s tra ns act io ns

wit h cap it al fro m Opp or tu ni ty Fi na nc e, rep ay in g th e l o an s th ro ug h th e pr oc eed s of

“re a l li fe” tra ns act io ns

. The re is no al le ga ti on th at th e pr oc eed s of Opp or t u n i t y

Fi na nc e lo an s wer e d iv ert ed to th e Po nz i s ch em e b ei ng pe rp et rat ed th ro ug h P CI.

W e ag ree wit h de fen da nt s th at th e he ig ht en ed pa rti cu la rit y req ui rem en ts of 6

Fed

. R

. C i v

. P

. 9( b) ap pl y to frau du le nt tra ns fer cl ai m s un de r MUFTA. See

Res id en ti al Fu nd in g Co

. v. Bel l St at e Ban k & Trus t, 63 7 F. App ’x 97 0, 97 1 (8 th Ci r. 20 16 ); Kran z v. Koe ni g, 24 0 F.R.D. 45 3, 45 5- 56 (D. Mi nn

. 20 07 ); Fed

. R. Ban kr

. P.

70 09 (ap pl y in g R

ul e 9 (b ) in ad ve rs ary pr oc eed in gs ).

-9

-The Trus te e co nt en ds th e SAC st a t e d a cl ai m fo r co ns tru ct iv e frau du le nt

tra ns fer be cau se it ad eq ua te ly al le ge d th at Pet te rs CB was in so lv en t at th e ti m e of each

tra ns fer, an d th e al le ga ti on th at th e 12 % in te res t rat e was “ su bs ta nt ia ll y in ex ces s of

th e m ark et rat e” su ffi ci en tl y al le ge d th at Pet te rs CB di d no t re c e i v e “ reas on ab ly

eq ui va le nt va lu e” fo r th e tra ns fers

. W e ag ree wit h th e ba nk ru pt cy co ur t t h at an

un su pp or t e d a l l e g at io n th at 12 % in te res t was ab ov e “ th e m ark et rat e” do es no t
pl au si bl y as se rt wit h su ffi ci en t pa rti cu la rit y th e ab se nc e of reas on ab ly eq ui va le nt

v al ue fo r th e rep ay m en t of on -g oi ng lo an s to fin an ce le gi ti m at e tra ns act io ns i n a

sp eci fic m ark et -- th e pu rch as e an d res al e of co ns um er el ect ro ni cs by a “ d i v ert er.” 7

W e al so ag ree wit h th e di st ric t co ur t th at th e Trus te e di d no t de m on st rat e th at

Pet te rs CB was or was ab ou t to b e e n g a g e d in act iv it ie s sa ti sf y in g th e fin an ci al

di st res s req ui rem en ts of Mi nn

. St at

. § 51 3.4 4( a)(2 ). The SAC al le ge s th at Pet te rs CB

“ was ab ou t to en ga ge in

, a bu si ne ss fo r whi ch it s rem ai ni ng as se ts were un reas on ab ly

sm al l” an d “ in te nd ed to in cu r, or be li ev ed or reas on ab ly sh ou ld ha ve be li ev ed th at it

wou ld in cu r, de bt s be y on d it s ab il it y to pa y as th ey be cam e du e.” Bu t th e co nc lu so ry

as se rti on of MUFTA’s st at ut or y el em en ts are in su ffi ci en t to st at e a cl ai m

. Iq ba l, 55 6

U.S. at 67 8. And th e ad di ti on al su pp or ti ng fact s al le ge d
-- th at Pet te rs CB “ ha d n o

le gi ti m at e cap it al iz at io n,” was “ pr op pe d up wit h fu nd s ob ta in ed by frau d th ro ug h th e

Po nz i sc he m e,” an d “ op erat ed at a ne t lo ss ”
-- are in su ffi ci en t to pl au si bl y pl ead th at

,
at th e ti m e of each of th e hu nd red s of ch al le ng ed tra ns fers

, Pet te rs CB ha d in su ffi ci en t

as se ts to carr y on it s le gi ti m at e bu si ne ss an d wou ld be un ab le to pa y it s de bt s as th ey

The SAC al so so ug ht to av oi d a $3 49 ,00 0 pr ep ay m en t pe na lt y Pet te rs CB pa id 7 Opp or tu ni ty Fi na nc e, al le gi ng th at Pet te rs CB ob ta in ed no va lu e fo r th is tr a n s f e r be cau se th e no te s “ ex pr es sl y pr ov id ed fo r pr ep ay m en t wit ho ut pe na lt y .” The Trus te e

ap pe al ed th e di sm is sa l of th is cl ai m to th e di st ric t co ur t. The Trus te e’s br ie fs to th is

co ur t argu ed th at th is cl ai m su ffi ci en tl y al le ge d lack of reas on ab ly eq ui va le nt va lu e bu t di d no t ot he rwis e ap pe al di sm is sa l of th is cl ai m

. Eve n if th e S A C a d e qu at el y al le ge d la ck of reas on ab ly eq ui va le nt va lu e, we ag ree wit h th e di st ric t co ur t th at th e Trus te e d id no t s ta te a cl ai m of a ct ua l o r co ns tru ct iv e fra ud as t o t hi s t ran sf er.

-1 0-cam e du e. The SAC si m pl y rel ie s on th e as su m

pt io n th at Pet te rs CB was fin an ci al ly

di st res se d be cau se it rece iv ed in fu si on s of m on ey fro m Pet te rs ’s Po nz i sc he m e. Tha t

is co nt rary to Fi nn : “ it is no t at al l cl ear th at ev ery frau du le nt in ve st m en t arra ng em en t

th at is la te r de te r mi n e d t o b e a Po nz i sc he m e ne ces sa ril y wil l ha ve be en in so lv en t

fro m it s in cep ti on ”; “ a de bt or co ul d ha ve as se ts or le gi ti m at e bu si ne ss op erat io ns

as id e fro m th e P o n z i s ch em e

. . . th at it us es to st av e of f in so lv en cy , at le as t fo r a

whi le .” 86 0 N.W.2d a t 6 49

.

W e ag ree with th e ba nk ru pt cy co ur t and th e di st ric t cou rt th at th e SAC fai le d

to st at e a cl ai m

of a ct ua l o r co ns tru ct iv e fra ud ul en t t ran sf ers un de r MUFTA.

II I. Deni al of L ea ve To Am end.

At t he Decem

be r 20 15 om ni bu s h eari ng , cou ns el for th e Tru st ee ad vi se d:

Trus te e St oe bn er int en ds to se ek to am en d hi s co m pl ai nt ei th er by way of st ip ul at io n or m ot io n to am en d. Th e r e a r e se ve n pu rp os es fo r th is

am en dm en t.

One is to ad dr es s is su e s

. . . reg ard in g th e Mi nn es ot a Su pr em e Co ur t de ci si on in th e Fi nn cas e. A s e c o n d p ur po se

. . . co nc ern [s ] th e

am ou nt of de ta il in th e al le ga ti on s co nc ern in g th e is su e of in it ia l ve rs us

su bs eq ue nt tra ns fere e [DZ Ban k].

A t hi rd pu rp os e

. . . is to al le ge wit h gr eat er sp eci fic it y

. . . th e

tr u s t e e ’s st an di ng to br in g st at e la w cl ai m s ba se d on tra ns fers by

. . . Pet te rs [CB] whi ch is no t o ne of t he na m ed de bt or s . . . .

A fo ur th pu rp os e is to co r r e c t al le ga ti on s th at id en ti fy va rio us

go ld en [pr ed ic at e] cred it or s.

A fif th pu rp os e is to try to se t fo rth th e tru st ee’s c l ai m s wit h

gr eat er cl ari ty.

-1 1-A si xt h p ur po se is to all eg e a cl ai m

for un jus t en ric hm en t.

And fin al l y , a se ve nt h pu rp os e m ig ht be to el im in at e on e of th e le ga l t he or ie s.

Afte r ex te ns iv e arg um en t, th e ba nk ru pt cy co ur t ru le d: “ un de r

. . . Ru le 16

, I am go in g

to is su e an ord er t ha t’s g oi ng to de ny the tru st ee a ri gh t t o fi le a m ot io n fo r le av e to

am en d at an y po in t be fo re I ha ve is su ed m y de ci si on on th e pe nd in g mo t i o n s fo r

di sm is sa l an d an y po te nt ia l of am en dm en t is go in g to be en ti rel y co nt in ge nt on wha t

I do wit h th at di sm is sa l.” Si x week s la te r, th e co ur t gr an te d th e m ot io ns to di sm is s

an d ru le d t ha t g ran ti ng th e Tru st ee leav e to fil e a Thi rd Am en de d Com pl ai nt wou ld

be fut il e.

Afte r th e ba nk ru pt cy co ur t r u l e d

, t h e Trus te e di d no t fil e a po st -jud gm en t

m ot io n se ek in g le av e to am en d an d at ta ch in g a pr op os ed Thi rd Am en de d Co m pl ai nt

. Rat he r, th e Trus te e ap pe al ed to th e di st ric t co ur t, arg ui ng th e ba nk ru pt cy co ur t erre d
by in vo ki ng Ru le 16

, rat he r th an Ru le 15 (a)( 2)

, be cau se “ [u ]nde r se tt le d la w, a co ur t

m us t ad d r e s s a m ot io n to am en d a co m pl ai nt be fo re ru li ng on a pe nd in g m ot io n to

di sm is s,” su pp or ti ng th at as se rti on wit h a m is -ci ta ti on to ou r de ci si on in Pu re

Co un try, In c. v. Si gm a Ch i Fr a t e r n i t y, 31 2 F.3 d 95 2, 95 6 (8 th Ci r. 20 02 ). W it ho ut

at ta ch in g a pr op os ed Thi rd Am en de d Co m pl ai nt

, th e Trus te e se t fo rth al le ga ti on s th at

an am en de d co m

pl ai nt “ wou ld ha ve al le ge d” rel at in g to hi s st an di ng to ch al le ng e

tra ns fers by Pet te rs CB be fo re Pet te rs acq ui red Po la ro id Co rp or at io n, an d id en ti fy in g

“ pr ed ic at e cred it or s” who wou ld ha ve th at st an di ng

. The di st ric t co ur t ob se rv ed th at

“ it ap pe ars th at Ru le 15 is th e ap pl ic ab le ru le ,” th ou gh “ arg ua bl y , Rul e 1 6 p ro vi de s

so m e su p p o r t f

o r th e Ban kr up tc y Co ur t’s de ci si on .” 56 2 B.R. at 37 8 & n.9

. Howev er, th e co ur t co nc lu de d, th ere was no ab us e of th e ba nk ru pt cy co ur t’s Ru le 15

di sc ret io n t o d en y

lea ve to am en d bec au se th e am en dm en ts wou ld ha ve be en fut il e.

Id

. at 37 8

- 3 8 4 ; s e e Uni te d St at es ex rel

. Raynor v. Nat’l Ru ral Uti ls

. Co op

. Fi n.,

-1 2-Co rp ., 69 0 F.3 d 95 1, 95 8 (8 th Ci r. 20 12 ) (“ fu ti li ty co ns ti tu te s a va li d reas on fo r de ni al

of a m ot io n t o a m en d” ).

On app eal

, th e Trus te e do es no t revi si t th e Ru le 16 is su e, an d rig ht ly so

. The

Trus te e ne it he r fil ed a m o t io n fo r le av e to am en d, as Ru le 7( b) (1 ) req ui res , no r a

pr op os ed Thi rd Am en d e d C o mpla in t, as Dis tri ct of Mi nn es ot a Loc al Ru le 15 .1

req ui res

. The Trus te e’s or al req ue st fo r l e av e to am en d at a pr et ria l he ari ng rai se d

ob vi ou s cas e m an ag em en t is su es co m m it te d to th e co ur t’s di sc ret io n by Ru le

16 (c)( 2) (B), (K), (L), an d (P). The effe ct of th e ba nk ru pt cy co ur t’s ru li ng was no t to

ba r a Thi rd Am en de d Co m pl ai nt

, bu t to req ui re th at th e Trus te e fil e a m ot io n fo r le av e

to fil e th at co m

pl ai nt af te r th e co ur t ru le d on th e pe nd in g m ot io ns to di sm is s. At th at

ti m e, if th e m ot io ns were gr an te d, “ di st ric t co ur ts in th is ci rcu it ha ve co ns id erab le

di sc ret io n to de ny a po st -jud gm en t m ot io n fo r le av e to am en d be cau se su ch m ot io ns

are di sf av or ed

, bu t m ay no t ig no re th e Ru le 15 (a)( 2) co ns id erat io ns th at fav or

affo rd in g pa rti es an op po rtu ni ty to te st th ei r cl ai m s on th e m eri ts .” Uni te d St at es ex

rel

. R o o p v. Hy

po gu ard USA, In c., 55 9 F.3 d 81 8, 82 4 (8 th Ci r. 20 09 ). Giv en th e

Trus te e’s ne arl y two -y ear de la y in see ki ng lea ve to fil e a th ir d a men de d co m pl ai nt

, th ere was no ab us e o f th e b an kr up tc y co ur t’s ca se m an ag em en t d is cret io n.

On ap pe al

, th e Trus te e in st ead arg ue s th at th e di st ric t co ur t erre d in co nc lu di ng

th at th e sp eci fic pr op os ed am en dm en ts pr es en te d in hi s br ie f on ap pe al were fu ti le

. Thi s co nt en ti on req ui res li tt le di sc us si on

. As th e tru st ee ad m it s, th es e am en dm en ts

, be la te dl y pr es en te d to th e di st ric t co ur t, rel at ed to whe th er he ha s st at ut or y st an di ng

to su e. The refo re, our co nc lu si on th at th e SAC fai ls to st at e a cl ai m un de r MUFTA

fo r ei th er act ua l or co ns tru ct iv e frau d, reg ard le ss of th e tru st ee’s sta nd in g, con fir m s

th at th e pr op os ed am en dm en ts wou ld be fu ti le

. The di st ric t co ur t d i d n o t err in

affi rm in g t he ba nk ru pt cy co ur t’s d en ia l o f le av e to am en d t he SAC.

The jud gm en t o f th e d is tri ct co ur t i s af fir m ed

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

-1 3-